Asset-Based Lending Gets Better for Borrowers

As new providers enter the market for asset-based financing, borrowers should enjoy more choice, lower costs and more flexible terms.

The market for asset-based financing has undergone a marked shift over the past 12 to 18 months, and the changes are good news for most companies looking to secure funding. A variety of new and nontraditional players are entering the asset-based lending market. They range from hedge funds looking for stronger returns on their investments to large, cash-rich companies like United Parcel Service that are seeking to expand into a new line of business. All of these entrants are making waves in the market.

"These new players are taking business away from traditional asset-based lenders, and as a result asset-based lending has become a very competitive business," reports B.J. Rone, a partner with Tatum Partners in Dallas.

The "enormous supply of capital and liquidity in the market" are further cranking up the competition, according to James G. Connolly, president of Bank of America Business Capital in Glastonbury, Conn. "In fact, there is more supply than demand. It is a good time for companies to put financing in place if they look at all of their options."

The result of these trends has been the recent emergence of a buyer's market in asset-based financing. Not only do borrowers -- particularly those in a relatively strong financial position -- have more lenders to choose from, but the market's increased competition is also driving down the costs of asset-based financing. "In some cases, this financing is 25 to 50 basis points cheaper than it was a year ago," reports Connolly.